Eighteen months ago today the Prevention of Social Housing Fraud Act 2013 came into force. It seems an appropriate moment to take a look at what the Act does, whether it has lived up to its promise, and how it can be used most effectively.
The scale of the problem
The Act is targeted at tenants of local councils and registered providers of social housing who, in breach of their tenancy agreement, sublet their properties for profit. Research estimates that 98,000 social homes are unlawfully sublet in this way. The National Fraud Authority estimates that housing tenancy fraud costs the public purse at least £900 million a year. In a time of unprecedented demand for social housing that constitutes a drain on a precious social resource that the sector – and country – can ill afford.
What the Act does
The Act creates new criminal offences and civil remedies. It also brings assured tenancies into line with secure tenancies regarding the loss of assured status when the tenant sublets or parts with possession.
The Act creates offences of knowingly or dishonestly subletting in breach of the tenancy agreement. No offence is committed where the tenant knowingly sublets because of violence or threats of violence, or where the person occupying the property is a person who would be entitled to apply to have the tenancy transferred to them (most likely in practice a spouse, civil partner or cohabitee). Penalties on conviction range from a fine to two years in prison, depending on whether the offence was committed knowingly or dishonestly. Dishonesty is more likely to be shown where the tenant has made a profit from the subletting. The court must also consider making an unlawful profit order where a person has been convicted of an offence of unlawful subletting.
Prosecutions are brought by local authorities and must be brought within 6 months of the offence coming to light. Local authorities are not limited to prosecuting offences relating to their own properties. They can, and should, also prosecute unlawful subletting of properties belonging to other providers of social housing.
Civil remedies – Unlawful Profit Orders
The Act also provides local authorities and registered providers with a new standalone civil remedy to recover the profits made from subletting. Rapidly rising rents in the private sector mean there can be a significant profit to be made from the subletting of sub-market rent homes. The availability of unlawful profit orders can act as a significant deterrent to subletting and, in an appropriate case, can publically demonstrate a landlord's intolerance of the practice. Landlords can recover the full amount of the profit made, less any payments made to the landlord during the period of the subletting. The difference between social and market rents mean this can amount to a significant sum.
Loss of assured status
The Act inserted a new section 15A into the Housing Act 1988 which has the effect of bringing assured tenancies into line with secure tenancies in relation to the loss of security of tenure. It has always been the case that an assured tenant loses his assured status when he ceases to occupy the property as his only or principal home. The tenancy becomes a contractual tenancy that may be ended by service of a Notice to Quit. However, in the past the tenant could easily avoid repossession by simply moving back in before the Notice to Quit expires. This is no longer the case. Where a tenant sublets or otherwise parts with possession he loses his assured status for good, whether or not the property is subsequently re-occupied by him.
The Act has certainly brought about a renewed focus on social housing fraud. There have been some notable successes reported in the media. For example, more than 40 properties were recovered over a 10 month period in a joint initiative undertaken by Kingston and Richmond London Borough Councils. Last month Circle 33 recovered an unlawfully sub-let flat as well as £30,000 in unlawful profits and costs. Even informal action has yielded results: a "key amnesty" offered by Cornwall County Council led to the surrender of three unlawfully sub-let properties.
Help is out there
There can be no doubt that housing fraud affects registered providers as much as local authorities, but action to tackle abuse has been somewhat patchy. While landlords may be understandably wary of the difficulties around obtaining evidence of fraud, help is out there. Under the Prevention of Social Housing Fraud (Power to Require Information) Regulations 2014, local authorities have powers to demand information from third parties (such as banks, utilities and credit providers, and telephone companies). Such information can quickly help to build a picture of unlawful occupation. Similarly, social landlords can seek the assistance of, and share information with, the "specified anti-fraud organisations" designated under the Serious Crime Act 2007, subject to compliance with Home Office guidance.
Social housing fraud is certainly not going away, but the Act and regulations do provide powerful new tools in the fight against it. Full use should be made of them.
How Bevan Brittan can help
Bevan Brittan's housing team has extensive experience advising registered providers and local authorities, including in relation to tenancies obtained by deception and the recovery of properties where the tenant has sub-let or otherwise parted with possession. Our litigation team has wide-ranging experience assisting public bodies who have been the victim of fraud. We can assist with:
- Civil proceedings to recover the proceeds of fraud
- Possession proceedings
- Advising on the policies and procedures to prevent tenancy fraud
- Tenancy audits
- Advising on best practice in relation to data sharing and evidence gathering.